Absorption in the Greater Airport Area office market in the fourth quarter was negative 42,007 square feet compared to positive 83,307 square feet in the third quarter.
That followed 14 quarters, or 3 ½ years, of positive absorption and brought the year-to-date total for the market to 482,875 square feet.
The vacancy rate stood at 12.8% at quarter’s end compared with 12.4% for the overall Orange County office market.
Average asking lease rates rose slightly to $2.03 per square foot compared to $2.01 per square foot in the third quarter and $1.99 per square foot in the second, reflecting steady rate increases. And it appears “the switch has been hit” on rental rate increases. Rents are predicted to gain strong momentum through the balance of 2014 because of the increased leasing velocity coupled with new owners entering the market with higher rent expectations.
There were more than 1.2 million square feet of office space under construction in the fourth quarter, including Hyundai Motor America Inc.’s 469,000-square-foot Fountain Valley headquarters, which was recently completed; a 110,000-square-foot build-to-suit in Irvine; and two buildings in Newport Center totaling 680,000 square feet. It would therefore not be surprising if there’s another quarter of negative absorption this year.
The emergence of more efficient creative-office space continued to gain momentum. Some companies are cutting their space requirements by up to 30%, which will ultimately have implications for demand for space.
Creative spec-suites, such as those being offered at Von Karman Towers and Lakeside Tower, are commanding rent premiums and mitigating down times.
Unique creative-office space opportunities, such as the former NikeTown at The Triangle in Costa Mesa, are pushing for even higher rents and will likely get them.
Takers of such space include traditional office space users, including law firms such as Greenberg Traurig LLP; insurance companies such as Precept Insurance; and real estate brokerage firms, including CBRE. The phenomenon can be compared to the major shift in single-family home design in the 1980s.
More than 6 million square feet is vacant in the Greater Airport Area, and savvy owners continue to look for ways to differentiate themselves from the competition.
Dillon is a first vice president at CBRE.
